“Class Warfare”

Partisans surprise no-one by framing a “new” minimum tax rate on those making above $1 million as a declaration of “class warfare.” Out of an infinite number of problems with this (admittedly effective) rhetorical trick, let’s focus on a few.

It's also possible that we already have a problem.

First, nothing about a millionaire’s tax bracket is shocking or new. Today’s top marginal tax rates clock in far below what was normal or expected thirty years ago. Sensationalizing the commonplace is classic trick of demagoguery (YouTube), but not sound statesmanship.

Second, “class warfare,” defined to include any situation that pits the abstracted interests of one class against another, is nothing new to the political debate. In fact, it’s basically the Republican playbook for the past twenty years: what is constant whining about East Coast elitism, and the strategy of pitting “Real America” against the moral wasteland of the cities, except a prolonged and more conflict-driven excursion into “class warfare”? What is “trickle-down economics” but the assertion that, in America, the rich should come first, and everyone else second — or sometimes not at all? If this is class warfare, then we’re late to the engagement.

Finally, we as a country need to be able to effectively discuss sensible solutions to the nation’s current economic crisis. Taxing the rich isn’t punitive; it’s a way of meeting the bottom line, and better than any alternative the other side has offered.

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83 comments

  1. “what is constant whining about East Coast elitism, and the strategy of pitting “Real America” against the moral wasteland of the cities, except a prolonged and more conflict-driven excursion into “class warfare”? “

    Nope. I would call it social or geographical warfare …maybe. Don’t kid yourself, big shot lawyers here in the middle don’t like you guys much more than the pickup truck driving crowd.

    ” What is “trickle-down economics” but the assertion that, in America, the rich should come first, and everyone else second — or sometimes not at all?”

    Question: If the President injects investment capital into small businesses and then they hire people, which direction does the money go?

    ” Taxing the rich isn’t punitive..”

    Of course it is. This is a hyper-partisan bill with no hope of passing and the President knows this. He wants to create a populist dynamic before next year’s election. That’s Democratic Party Policy 101. And as previously discussed, the US already has the most progressive tax policy in the world. But he Left does not believe social programs should be a shared burden.

    1. But he Left does not believe social programs should be a shared burden.

      And apparently the Right does not believe paying the bills should be a shared burden.

      There’s just one thing that confuses me, though. When the Bush tax cuts were extended in toto last winter, the argument was that the rich should be spared further burdens because they are “job creators”.

      And that’s great, but I was just wondering, when are they actually going to start creating those jobs? And could they hurry a bit?

      1. The problem is that everyone has been scared to spend based on projected new tax policies. My company has been hesitant to hire for that reason. Now we get a trillion dollar tax hike.

        1. Mike,
          If you company isn’t hiring because of “uncertain” tax policy implications, when do they hire? The Federal Income Tax Code is NEVER static, and it changes each Congress, and under EVERY President. Show me when it hasn’t.

          More likely that is an excuse for not hiring because there is no DEMAND for your services beyond what you already have. And that DEMAND has little to do with tax policy, since nearly every business I know of reprices to make a profit every time there’s a tax code change. IF they didn’t, they’d not survive very long in the marketplace.

          1. We’ve been positioned to hire for over six months. Almost all of my clients are on an upswing right now. But we have concerns about tax policy AND we have been trying to ascertain the impact of healthcare legislation. The latter is probably the bigger obstacle to hiring.

            And our customers typically sign 2-4 year contracts and usually demand cost savings when they re-up. We can’t mitigate tax hikes. Changes in the tax code eat our our margin.

          2. If you’re still trying to figure out the impact of the healthcare legislation, then your company isn’t that bright. Hate to say it, but well, we have, for example.

            1. NO ONE can say with 100% certainty how this will impact things, especially when large portions of it haven’t been implemented yet. Apparently your firm is in the future-predicting business. You all should take advantage of that. I’d pay a nominal fee to be able to plan out the next five years of my life with that kind of certainty.

            2. Yeah, I just don’t buy the “we’re still not able to predict how an unimplemented law will affect the world a year after it was passed” meme. Evidence, I guess, would be nice.

              1. Look at one example – it was predicted that millions would sign up for the insurance pools. There has been less than 200,000 by last count if I remember correctly. Cost estimates have been revised. The FSA accounts are being killed which will affect implementation. It’s huge legislation and claiming one can predict its effects with certainty is just nonsense.

            3. Mike you previously claimed that they should have implemented it immediately if they believed in the reform….instead they gave time for things to get into affect so affected parties could prepare…and you’re still worried.

              They’re trying to ease into these changes.

              Also, Mike, you ignore official CBO’s estimates while keeping to your own. So *shrugs*. You’re in the future-predicting business yourself.

              Each business is different, and will not react the same way, but other small businesses seem to jump in on the health care changes: http://www.latimes.com/health/healthcare/la-fi-health-coverage-20101227,0,109387,full.story

        2. I strongly doubt it’s tax increases that are scaring people from spending, because no one are talking about increases on the lower or middle classes. Consumers are getting scared mostly by the threat of unemployment, which obviously creates a gridlock. (No spending -> no hiring -> no spending, etc.)

          To fix that, the government needs to spend some money on education, investments and infrastructure, and I don’t think it’s at all unreasonable that the wealthy should accept a higher share of paying that bill than they do. After all, they have the money by definition, and they’re going to benefit significantly from an improved economy in the long run.

          1. We have discussed the progressivness of the American tax code already. If people want these programs it should be a shared burden.

            1. As Philip says below, they are shared burdens.

              But my point is that keeping the tax rate low is not the solution to your company’s problems. They are caused by the overall poor condition of the economy, both American and global, and fixing that is going to cost some money in the short run. If that doesn’t happen, we’ll be stuck in this crisis for years to come.

              1. I agree – it’s going to cost money…so why not have everyone chip in?

                1. Because having wealthy people chip in the most is not only equitable, it also has the least negative impact on consumption. Otherwise, you’re just putting money into the economy with one hand and taking it out with the other, which is pointless.

                  1. I didn’t suggest a flat tax – I am just suggesting a tax hike on everyone above the poverty line. You and I have discussed before that the wealthy alone cannot pull us out of the red.

                    1. Correct. But a combination of taxes on the wealthy, moderate cuts to benefits and defence, and significant increases in spending on infrastructure and education can.

                      I know you’re not fond of the idea, but the middle class needs to spend more money. That’s where the consumption mostly happens – not so much among the wealthy, who tend to save up more of their income.

                    2. They’re not going to spend more money so long as the jobs picture is murky. For example, my wife and I haven’t really cut back our spending but we also haven’t raised it even though we still have a cushion.

                      And while I am a big fan of WPA-style jobs programs I just don’t think infrastructure spending works well for a problem economy with the regs we have put in place over the last 60+ years. It’s just way too lengthy a process. That’s why we just see a lot of road resurfacing and make-work type stuff. We’re not moving things forward, just maintaining.

                      And while I also am a big believer in education (my oldest starts college next year) I also don’t think a lack of education is what’s hurting us now. There are plenty of qualified applicants out there. Companies are just scared to take on the salary and benefits burden in uncertain times.

                    3. That’s why we just see a lot of road resurfacing and make-work type stuff. We’re not moving things forward, just maintaining.

                      In this context, it doesn’t really matter what people would be doing, as long as they’re getting hired and paid. That’s the main point, although it’s obviously a nice benefit they’re doing something useful as well.

                      And while I also am a big believer in education (my oldest starts college next year) I also don’t think a lack of education is what’s hurting us now.

                      It already is to a certain extent, and it definitely will be in five or ten years, because places like China and India are investing heavily in research and education these years. When they have engineers that are just as qualified as ours but can work for a fifth of the wage, we’re all going to have a huge problem. The only solution that I can see is to try to stay ahead on technology.

                    4. The problem I have with those types of construction jobs is a few of things:

                      1) They are extremely temporary so it seems we’re just kicking the can down the road.

                      2) They don’t add anything to improve the longterm economic power of the country (as opposed to electrifying the South or the Eisenhower Interstate System)..

                      3) Very few are gaining marketable skills that will last them beyond these projects.

                      And yes, I am aware that Asia is producing more engineers. We hear a lot about that. And what edge do they create for those countries? There’s absolutely nothing happening there that couldn’t happen here. ‘Progress’ in those countries is due to investment and almost no regulations on development, not a surplus of engineers.

                      America is still leading in creative capitalism (think Apple) and that edge is going to remain for a long time. That’s our edge. There’s also a reason why so many of those Asian engineers got their educations in the US. We still have the best university system in the world. And in the meantime, a good % of those Asian engineers end up staying here. Shall I continue?

                    5. I’m curious if you’ve read the recent Atlantic piece on the disappearing middle class: http://www.theatlantic.com/magazine/archive/2011/09/can-the-middle-class-be-saved/8600/?single_page=true

                      “According to Gallup, from May 2009 to May 2011, daily consumer spending rose by 16 percent among Americans earning more than $90,000 a year; among all other Americans, spending was completely flat. ”

                      I don’t see why you would propose additional taxes on a class which has been hard hit by the recession, in terms of job loss/lay offs/unemployment, and really just future prospects. To no fault of their own, but victims of the recession we’re in, in which the upper class has been much better protected. We’ve had an alarming amount of people added below the poverty line. Putting more hardships on the middle class only push more below that line.

                      “Median family income fell 2.3 percent between 2009 and 2010—to $49,445—but more significantly, is down 7.1 percent from its peak in 1999. The percentage of the population in poverty—15.1 percent—is the highest since 1993, and the total number—46.2 million—is an all-time high. ”

                      I still also say, you can incentivize businesses/the rich all you want, unless you actually address the failing middle class, you won’t have the demand that they need to hire, invest, and produce.

                  2. Oneiroi,

                    “We’ve had an alarming amount of people added below the poverty line. Putting more hardships on the middle class only push more below that line.”

                    I have not and would not advocate a tax rate that would put anyone below the poverty line. I’m simply saying the ‘middle’ (and that’s a wide swath of taxpayers) can pay more. For example, a couple making $75K per year combined can certainly afford a little more taxation. Wouldn’t you agree?

                    1. They might be able to afford it, but the US economy can’t.

                    2. AKJ – That only makes sense if you believe that the very rich hoarde all of their disposable income and the upper middle class spend all of theirs. Otherwise, why not take a % of both? Surely the government can redistribute it in an equitable way that benefits those being hurt by the economy.

                    3. Well, we do know that the higher your income, the more of it you’re likely to save rather than spend. But the problem right now (or one of many, anyway) is that the middle class spends too little money, which hampers demand. Obviously, increasing their taxes is not exactly going to encourage them to spend more.

                    4. First – I’m talking about the upper middle class to start which I would characterize as the $100-250K bracket. They can afford some extra taxes. Period.

                      As for the rest, if they aren’t spending now, do we need to lower their rates?

                    5. It’s not a question of what they can afford individually, but what effect it will have in practice on their spending. Because even 100-250K group is a whole lot of people, so everything you do has an aggregate economic effect. When you’re in a crisis, it’s not reasonable to do something that would hurt the economy just on a point of principle alone.

                      And yes, some tax cuts for the lower brackets would probably be a good idea, as Obama proposed as part of his jobs plan.

                    6. I might go along with the idea that we’re basically just hiting the non-discretionary savings of people in the $250K and above bracket with a higher tax BUT I still don’t understand the notion that the people below that line are exempt because we need them to buy lots of goods and services. Even if they are saving less than those above them they STILL have money they could spare for the good of the country. We keep hearing about shared sacrafice but that seems to be a hollow term.

                      I also think that we may be seeing something of a psychological effect similar to the post-Depression period where people may be truly changing their spending habits a little. I’m not convinced a tax cut would change that.

                      Also, if we borrow money to create a tax cut, wouldn’t it be just as easy for Uncle Sam to inject that money directly back into companies in the form of hiring incentives?

                    7. I don’t disagree in principle with raising taxes on parts of the middle class as well, and that will probably be necessary in a few years. But pragmatically speaking, you got to consider how what you do affects the economy as a whole, and it’s just not the right time at present.

                      The problems with incentives is that companies decide on hiring based primarily on their expectations of future demand. I guess incentives can be a contributing factor, but the best thing is still to put some money into the hands of the middle-class consumers to spend, because that translates almost directly into sales for the companies, and in turn jobs.

                      But you’re right that psychology is very important, which is why investments that can put some people directly on a payroll and give them a bit of job security are also necessary.

                    8. I think $150K would be a reasonable floor for a progressive tax hike. Still plenty of income left over for spending in the $150-250 tax bracket and you have the psychological boost of more people contributing. The problem for the president is that he lost a lot of those top middle class voters in 2010 and I think he is terrified of losing them again in 2012. So they won’t be asked to help out.

                    9. If he can’t get a millionaire’s bracket from this Congress, he can’t get a $150+ hike either.

                    10. I don’t think he’ll get anything whatsoever from this Congress, because the GOP have zero interest in giving him any kind of victory just a year before the elections. So nothing’s going to happen until then.

                      (Yes, the ‘super committee’ might actually come up with something – but I want to see that before I’ll believe it.)

                    11. And I’ll just make the point – there is a lower class tax cut out there in the form of Mr. Obama’s payroll tax reduction that the Republicans want to roll back.

    2. But he Left does not believe social programs should be a shared burden.

      Um, Mike,
      “social programs” as you call them here ARE a shared burden, paid for by everyone, in that they come from the payroll taxes we all pay (except those whose income is taxed as capitol gains). Granted, the tax rate for those payroll taxes caps out well below $1 Million in income, but we all do pay these costs already.

      And, need I remind you, those programs are both the biggest drivers of the debt – including the Republican authored and unfunded Medicare Prescription program (in addition to unfunded war spending); they are also the subject of a temporary tax cut that’s about to expire (and that expiration has the full support of Republicans).

      The remaining parts of federal discretionary spending, which are funded by income taxes – and thus the subjects about which we should debate (given that we can’t have a forthright discussion about taxes anymore) include such “social programs” as the FBI, the Department of Homeland Security, the Patent and Trade Mark Office, the FAA, the Federal Trade Commission, the EPA (which does social work in that it makes sure we can all breathe more or less), and the Defense Department.

      And, if you look at studies of wealth vs. income vs. tax burden, you see that Warren Buffet is still right – he pays less of percentage in his income of taxes to support these things then you or I do, and an increase in his taxes isn’t going to hurt him economically.

      1. Why does Buffet pay a small % than you or me?

        1. Because most of the money he takes in is taxed as capitol gains, not income. Or so he says. That means the bulk of his taxes are capped at 15 %, where as you and I have a potential top marginal tax rate of 35%. If memory serves, he’s said that his total tax burden is around 17%, while most wage earning Americans have a total tax burden of between 25% and 28%.

          Leaving that issue aside, if his “earnings” from capitol gains were taxed at 35%, he’d still have WAY MORE total dollars left over to spend then you or I would.

          1. And in addition, since basic living expenses are the same no matter your income (C0 is constant, in technical terms), those 35% actually represent a lesser share of his disposable income than it would for the rest of us.

          2. But he’s not just ripping the IRS off right? He’s sticking to the tax code and reporting his income in a permissable way…right?

            1. Yes, he is. At least so far as anyone can determine.

              1. So then why raise his rates? Why not close the loopholes in the tax code and get everyone paying the rate they are supposed to?

                1. Oh come on – we have loop holes precisely because folks like Buffet WANT to not pay the same percentage of taxes as you and I do. and so they will not allow any loopholes which benefit them – including the capitol gain thing – to be closed. So the only way to increase the share they pay – and that’s what progressive taxation is all about – is to raise the top tax bracket. And I remind you we had a higher tax bracket (39%) under Mr. Clinton in a growing economy then we do now (35%) and that didn’t seem to have a measurable effect on growth, hiring or anything else.

                  1. I don’t quite follow the logic there. If the rich can stop the loopholes from being closed, why can’t they stop the rates from being raised? And vice versa?

                    And I think we’ve covered the Clinton economy before. There were several factors that were different:

                    – The phantasm of the dot com bubble
                    – Offshoring wasn’t nearly as common
                    – No wars

                    Comparing the Clinton years to today’s economy when trying to determine tax policy is pretty misleading.

                    1. And yet we get your side comparing to Reagan all the time . . . .

                    2. Phillip – as you well know, I don’t always represent ‘my side’ as well as some would like. So between you and I, are the Clinton comparisons really that fair?

                    3. Clinton is the most recent Democrat we have. Thus we compare to him because history forces us to.

                    4. Clinton may have been the last (D) president but there is little similarity economically between now and then. And if you DO want o compare them, look at the tax rates. The middle class was paying 15% more in taxes. Is that what the Left would prefer?

                    5. I think the most important take away comparing with Clinton, is that high taxes didn’t destroy the economy.

                      Just as our historically low taxes haven’t helped.

                    6. “High taxes don’t destroy the economy…”

                      Great! Then let’s raise the rates on the top AND the middle.

                      But AKJ disagrees. He says the top needs to give and the middle needs to spend, or at least for now. Do you concur?

                    7. High taxes don’t destroy an economy that is doing well. In fact, they can even support it by preventing it from overheating. But to point out the obvious, the economy isn’t doing well at the moment to say the least, which is another scenario entirely.

                    8. So is there ever a ceiling on the top tax rate? When is that just as dangerous as raising taxes on the middle? Our friends on the American Left believe there is still room for more in that top bracket despite the fact that the middle is currently paying one of the lowest rates on record.

                    9. Sure there’s a ceiling, but it’s hard to say precisely where. Most western European countries have a top tax rate somewhere in the 45-55% range, so yeah, I think there’s room for more. I can’t imagine another 5% or so on the $1 million plus earners would hurt any.

                  2. Actually – let me correct that. The middle is paying the second lowest rate in history – but let’s remember they can’t afford another cent!

                    1. They’re also trying to make it through the second worst economic crisis in history, so there are many who cost likely can’t.

                    2. So fine – lower the tax rate on someone who has been unemployed. But for someone who has had a job throughout the recession – how has their situation changed?

                    3. Threat of future unemployment is a big one. So are pension funds, house or other investments losing value.

                    4. But couldn’t one also argue that increased taxes provide for more infrastructure and job creation so it’s a good investment for the future?

  2. You disappointed me – I was hoping for a post on that “Take Back Wall Street” thing today.

    Also, what are you talking about. Is this part of the jobs plan? Or is it a separate proposal?

    1. I think it’s a separate proposal. And Take Back Wall Street is SUPER LAME. They took up like one half of the plaza between WTC & Broadway, and a few square meters of Bowling Green. For that, all of Wall Street between Broad and Broadway is shut down. BULLSHIT

      Oh, but I included a picture of some graffiti for you. Good enough?

      1. Considering his Jobs Proposal is already having opposition in the House (not entirely sure why – what I know of it it’s got one thing I hate, one thing I absolutely love, a chunk of stuff I’m agnostic about, and probably some stuff I don’t know about), seems strange to me he would follow up with this Whatever It’s About Proposal (debt I assume) before the Jobs one is done with. I’d think that would be running the risk of overextending his political capital.

        I didn’t realize the picture was graffiti from that non-event. Actually, hadn’t even heard of that non-event until I checked Facebook yesterday and saw several posts about it. Yours was the only one from a New Yorker though (I don’t have a lot of friends in New York). Most of them were (hopeful) posts from non-New Yorkers wondering how large and successful it had been and why they hadn’t seen any Commercial News coverage of it.

        1. The jobs proposal was mostly designed to be paid for with tax hikes. that’s why it’s really just political theater. When he said it was paid for in his first speech that was more than a little misleading.

          1. Honestly I’m not clear on what the “paid for” portion of the jobs proposal entails. I know the proposal contains this:
            -Payroll tax cut. I LOVE this, although it doesn’t go far enough in that there’s still some FICA instead of no FICA. It effectively gives all the working poor and a huge chunk of the middle class a big raise and gives the rest of the middle class a proportionally smaller raise. Plus, added bonus, it takes dedicated income away from some programs I hate and want to see done away with.
            -Declaring the existence of a new kind of “employment discrimination”. HATE this. I believe in unrestricted at-will employment, and every time somebody invents a new kind of discrimination and bans it that restricts the job-owner’s right to let whoever they want borrow it.
            -Stimulus. I’m agnostic about this, because I don’t know how much stimulus and I don’t really know in advance how much good it’ll do. Based on ARRA I’m assuming there’s some sort of split between good stuff like infrastructure and crap like CDBG, but I don’t know what the split is. And, of course, not knowing how much stimulus means I don’t know how much or what sort of tax hike.

            I’ll be honest, if it’s capital gains tax hike or estate tax hike I’m not going to be very bothered. Those are unearned income unlike wages and salaries and commissions and tips. Makes sense to me that they’d be taxed higher – and instead they’re taxed lower.

            1. Those are unearned income unlike wages and salaries and commissions and tips.

              This is actually something I like very much. If you push a hedge fund manager on the “unearned income” line, he’ll probably retort with something like “I work just as hard as that waitress over there for my money”; and then the reply is pretty obvious: then why don’t you pay the same taxes as she does?

              Of course, this idle rhetorical fantasy involves someone with an actual microphone being able to talk to a hedge fund manager, so that’s pretty much a bust. Still, it would be nice…

              1. I would remind everyone that capital gains earnings represent risk. And capital gains investment also represents the creation of capital. The government has traditionally rewarded this with lower taxes.

                1. Mike, I’m quite aware that capital gains earnings represent rewards for risks taken. I’m not sure why that matters, though.

                  And I dispute that modern capital gains really represent the creation of capital. If you’re a venture capitalist, an angel investor, or buying corporate bonds, yeah, you’re creating something. If you buy stock when a company issues it, yeah, you’re creating something.

                  Most capital gains, though, aren’t like that. When I buy mutual fund shares every month for my retirement account, I’m not funding a factory expansion or enabling someone to start up a business. I’m buying shares from somebody who’d bought them for his retirement account. And yeah, ideally for him I pay him more than he paid and he makes a profit.

                  What did he do for that profit, though? Nothing. He waited. And yes, it’s important that he be able to make that profit since it gives him the incentive to be a link in the chain that goes back to the original investor who actually created something with his investment and rewards that investor. I don’t think it’s important enough to be rewarded with lower taxes, though.

                  Wages, salaries, commissions, that sort of earned income is based on work that actually creates value. Creating value should be rewarded. Loaning an entrepreneur the capital he needs to start his business creates value too, and it should be rewarded. The most that can be said for trading in stocks or bonds or funky derivatives is that it gives that Initial Investor an alternative way to profit from his investment. That, I don’t think needs to be rewarded.

                  And for all that I’m conservative about a lot of things, I think it’s important to remember that “traditional” means “old”, not “right”. It doesn’t preclude right, but it’s not necessary or sufficient for rightness.

                  1. Steve,

                    “What did he do for that profit, though? Nothing. He waited.”

                    That’s not accurate though. His stock ownership represents sacrafice at the time of purchase. He bought those stocks in lieu of spending the money on something else. That investment created capital for those companies. The government rewards that process with lower capital gains taxes.

                    1. That’s the thing: his investment didn’t create capital for the company. Capital only goes to the company during an IPO or subsequent share offering. After that, sales – really resales – of stock do nothing for the company. It’s the same as buying used products off of Craigslist or at a thrift store: the manufacturer gets nothing.

                      Which means the justification for favoring capital gains in the tax code isn’t true.

                    2. But is anyone going to buy the shares in the original offering if there is no chance of resale-for profit? That potential has to be there to drive those initial investments.

                    3. Well, there’s still some incentive from dividends even if you ban resale for profit. But nobody (that I’m aware of) is proposing the ban of resale for profit. I’m just saying that it doesn’t contribute enough to the creation and exchange of goods and services that it should be national policy to give it favorable treatment in the tax code.

                      Also, wouldn’t raising the capital gains tax encourage investors to take a long position? I don’t think you pay tax on unrealized gains, so holding on to things longer would make more sense – and that might help change the corporate leadership’s thinking from harmfully short-term to something a little longer.

                    4. I’d say Steve is 95% right, in that buying shares raises demand and consequently its price, which in turn does benefit the company by making it easier to raise capital through further emissions if necessary. But otherwise, yeah, buying shares is really a form of saving rather than a true investment.

                    5. Or to be more precise, it’s an investment in the financial sense, but not in the economic.

  3. From Ames:

    “If he can’t get a millionaire’s bracket from this Congress, he can’t get a $150+ hike either.”

    From AKJ:

    “I don’t think he’ll get anything whatsoever from this Congress, because the GOP have zero interest in giving him any kind of victory just a year before the elections. So nothing’s going to happen until then.”

    So the question is, since the WH knew from the start that he probably wasn’t going to get anything he asked for, why not ask for the moon? Establish some first principles. Tax hikes have to go much deeper than $1 million in order to be effective. Why not tell that to the American people?

    I have no patience for political theater anymore. Bah humbug…

    1. The jobs plan speech was essentially the launch of his re-election campaign, and I guess the strategy is to present a more reasoned and measured alternative to the GOP “no taxes” dogmatism. Asking for too much in the other direction, such as too radical tax increases, would undermine that. And as I just argued above, deeper tax hikes won’t be economically realistic for at least a few years anyway, so it’s not all that relevant for this paticular election.

      I got to warn you, though – it seems like the White House and Congress are going to stonewall each other completely from now on, so unless something really serious happens, I think political theater is all we’ll get until the election.

      1. If we really need new taxes, I think a 3% raise across the board is completely reasonable. The big O wants to keep the middle though.

        1. As he has to, if he wants to be reelected, which he obviously does.

          And I don’t know which precise percentage would be appropriate, it just can’t happen now. Maybe it’ll be possible in three or four years if we’re lucky.

          1. We don’t have 3 or 4 years if Europe is any indication.

            1. It isn’t really, though, because the problems of the EU and the US are somewhat different. Or rather, they’re the same problems, but the order in which they need to be resolved is different.

              For both sides, the main problems are debt and lack of economic growth. But the difference is that in the EU, we need to solve the debt first, whicle in the US, you should deal with growth first. The reason is that the EU, or at least the Euro-zone, lacks real political institutions that could credibly deal with a situation where e.g. Greece defaults and causes losses for large parts of the European financial sector. This in turn of curse generates a lot of uncertainty and lack of confidence in the markets, which just makes the whole problem even worse. So dealing with the debt should be the first priority for Europe.

              The US doesn’t have that problem, because the markets still have faith in the government’s ability to meet its obligations – even after the recent credit rating downgrade, the interest rates didn’t really move very much at all, contrary to what most people (myself included) thought would happen.

              So unlike the EU, it seems like you can actually afford to spend a couple of years to focus on measures that will boost growth and strengthen the economy, which will in turn make it easier to deal with the debt.

        2. Shouldn’t Republicans want to keep the middle as well? And Independents? There aren’t enough folks in your party to get any of your guys elected without those Americans . . .

          1. The middle class will not punish the GOP for not raising taxes on the top. They WILL vote against Obama for raising taxes on the middle. So the right thing to do be damned.

    2. I have no patience for political theater anymore either, but when we defund (even temporarily) the FAA so Delta Airlines won’t have to fend off union challenges, and we threaten again to shut down the government again so that FEMA disaster funding can be offset by throwing out a government loan program to innovate in the auto industry, I’m at the point where incessantly pointing out the WH has no balls is tiresome. You want and end to political theater – get your D*&N side of the aisle in Congress to do its one Constitutionally mandated job and fund government. We give them a year to do one thing, and they can’t do it. Neither could ours, and I can not tell you how tired I am of it. Otherwise, head the call of Scripture and remember that only he who is without sincan cast the first stone.

      1. My solution for that would to be to quit bundling legislation so those kinds of maneuvers are even possible. That will never happen though.

  4. Mike: But couldn’t one also argue that increased taxes provide for more infrastructure and job creation so it’s a good investment for the future?

    Absolutely. But if you do investments that increase demand with the one hand, and raise middle-class taxes that decrease demand with the other, you’re really back to square one, or worse.

    The best approach is to finance the investments with taxes on the group that we know contribute the least to demand anyway, i.e. the high-income earners. Then you can (and should) raise taxes more broadly later, when the economy is doing better.

    Whether a “high-income earner” in this situation should mean $250K+, $500K+ or $1M+ is debatable, but it’s probably better to err on the side of caution and not set it too low.

    1. Ah – but the investment has much longer lasting effects than the short term boost of a lower tax rate. And at this point any positive benefits from the Bush tax cuts for the middle class has to be played out. People have standardized their spending and aren’t going to go deeper (which is what you are saying we need to get the economy back on track). I tend to think demand would be more greatly stimulated if new innovations went to market. That process is more dependent on govertment investment which means we need an infusion of investment capital, not the promise of the middle class with open wallets.

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